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Prepare the high altar for sacrifice. The Labour Party can dither no longer. Some of its most sacred cows are in need of slaughtering.

The magnitude of last Saturday's crushing defeat dictates that whichever David - Cunliffe or Shearer - emerges triumphant from the leadership tussle, his first action should be to initiate a rigorous, thorough and preferably independent top-to-bottom review of the party's structure and practices.

Nothing should be exempt from scrutiny. Not even that most delicate of subjects - the role of the party's trade union affiliates.

Such a review must peel away the liberal coatings of gloss with which some in the party have sought to pretty up Saturday's ugly result.

The reasons why Labour fared so badly are far more serious than the vote-pulling power of John Key's persona or the near impossibility of unseating a Government that has served just one term.

Labour - the party of the Third Way - has simply lost its way.

Under Helen Clark, Labour long dominated the vote-rich centre. But Key-led National progressively occupied it, pushing Labour to the margins and defeat in 2008.

As the new leader, Phil Goff's answer was to invoke Labour's grand tradition of fairness and equity. But wary of moving too far to the left, he did so in only a half-hearted fashion. The result was crazy policies like taking GST off fresh fruit and vegetables - a compromise which endeared Labour to no one except perhaps John Key's "underclass". But the "underclass" cannot be relied on to vote.

Labour's dismal poll ratings prompted the party to further circle the wagons. It was easier to draw comfort rather than just inspiration from the party's glory days of Mickey Savage and Norm Kirk.

While National was promising a brighter future, Labour was offering a better past. But no one lives there any more.

Labour had lost touch with middle New Zealand. It thought voters would reward it for trying to stop state asset sales. The voters did not really care about that. They wondered instead what they had done to deserve to be punished with a capital gains tax.

The party kidded itself - as it had done since losing power - that voters would come "home" to Labour once they came to their senses and realised the overwhelming superiority of its policies and that John Key is not quite what the media cracked him up to be.

This toxic combination of false hope and unfathomable arrogance was shattered last Saturday.

Labour's overall vote shrank by 15 per cent at the 2008 election. That was not unusual for a party that had been in power for nine years. But Saturday night's result saw Labour's vote shrink again, this time by 23 per cent on the 2008 provisional result.

All up, nearly 300,000 voters deserted Labour between 2005 and 2011 - that amounts to 35 per cent of the party's 2005 election night tally.

What is truly staggering is that National won the party vote in Christchurch East and Dunedin South, places where blue rosettes are rarely seen and their wearers definitely not heard.

Of equal concern is the Greens' increasing incursion into Labour's metropolitan seats. In Wellington Central, the Greens' party vote was only a whisker short of Labour's.

The Greens' decision to enter the mainstream economic debate not only brings them closer to National. The Greens are now nibbling away at Labour's right flank as well as its left, attracting better-off voters who empathise with the Greens' message but who were previously unimpressed with the party's economic policy credentials.

Most worrying of all for Labour, however, is the decline in the party's support in provincial North Island cities, occupation of which largely determines who governs. Here, Labour's vote was a miserable 21.9 per cent.

Turning that around by the next election will require a Herculean effort by the new leader. It may be nigh on impossible. But the first thing Labour must do is stop fighting battles National has long won.

Take welfare reform. These are tough times. People who are working cannot fathom why those on benefits - including sole parents - should not be obliged to look for work. Labour's response that there are no jobs misses the point. Worse, Labour promised to make beneficiaries eligible for the in-work payment - a device which was designed by the last Labour Government to reward those finding work. Labour would have turned what was a hand-up into a handout.

Voters seem comfortable with other National policies which Labour opposes - be it privately-run prisons, making membership of student unions voluntary or imposing 90-day probation periods on new workers.

Perhaps the best example where Labour is wrongly positioned is national education standards. Parents want them - plus league tables rating schools' performance to boot.

Labour predictably sided with the teacher unions. That may have produced a warm glow of solidarity. Siding with parents - as the Australian Labor Party did on the issue - would have sent a powerful message about Labour's readiness to adapt and modernise.

Instead, Labour more and more resembles a political club serving only the interests of its various sects, rather than a mass political movement catering to the needs of a wider society.

Thus did the party produce a half-baked industrial relations policy which looked like a return to collective bargaining in drag. Goff tried to argue otherwise. But he failed to convince because he did not sound convinced himself.

That is a hazard of a first term in Opposition. The pressure to be different can see the advancement of less than credible policies whose only virtue is that everyone knows they will never be implemented.

Sorting out all this muddled thinking is going to be hard enough for the new leader.

His next task will be to shake off the public's negative perception of what Labour stands for.

That will require some kind of highly symbolic move in some policy area that gets across the message that Labour really has changed. It means ditching some things the party likes but voters do not.

Above all, it means looking rightwards if Labour is going to get back on song with mainstream voters and thwart Key. For many in Labour, that won't be an easy shift to make.